How to retain control over a trust when you are no longer the owner of the assets
A founder maintains control over a trust fund through its statute, the right to appoint and dismiss the trustee under Section 1455 of the Civil Code, supervision under Section 1463, and judicial instruments under Section 1466. Lawyers from the Prague-based ARROWS law firm also describe the line beyond which legitimate control becomes a risk. You will find specific answers here.
Key takeaways
What Really Changes When Assets Are Set Aside
A trust fund is created by setting aside assets from the founder's ownership. According to Section 1448 of the Civil Code, this creates separate and independent ownership of the set-aside assets, and the ownership rights to them are exercised by the trustee in their own name on behalf of the fund. The assets in the fund are not the property of the trustee, the founder, or the beneficiary. We discussed the creation of the fund itself – from the asset set-aside agreement to registration in the register of trust funds – in the article how to establish a trust fund step by step.
According to Section 1456, the trustee is registered as the owner in the Land Registry and other registers with the note "trustee". Therefore, after the fund is established, the founder cannot dispose of the assets themselves and has no direct access to them; they only retain the rights they have reserved in advance.
Moreover, the scope of the trustee's powers is broad. The trustee has full administration rights and, according to Section 1410, can do anything necessary and useful with the administered assets. This is precisely why the issue of control is a matter of documentation, not personal trust.
The Statute as the Main Control Instrument
Every trust fund must have a statute, which is issued by the founder and requires the form of a public deed (notarial deed). Section 1452 lists the mandatory requirements: the name of the fund and its assets, its purpose, the conditions for distributions, its duration, the designation of the beneficiary or the method of their designation, and the number of trustees, including how they act.
However, the law sets a minimum, not a maximum. How much control the founder actually retains after setting aside the assets is determined by what they manage to include in the statute beyond the legal minimum.
In practice, this is often supplemented with a mechanism for appointing and dismissing the trustee, a list of actions requiring prior consent, investment and debt limits, the scope and frequency of reporting, the role of a supervisor, and the resolution of succession upon the founder's death. The statute is more difficult to amend than a company's articles of association, so any mistake in its setup has a long lifespan.
Appointment and Dismissal of the Trustee
According to Section 1455, the founder appoints and dismisses the trustee, but may specify a different method of appointment or dismissal in the statute. If the authorized person does not appoint a trustee within a reasonable time, the court will appoint one upon the motion of a person with a legal interest.
The right to dismiss the trustee is the most powerful control lever the founder has after setting aside the assets. However, it is a subsequent tool: the dismissal itself does not nullify legal acts already performed by the trustee on behalf of the fund, nor does it return sold or pledged assets.
Therefore, in well-structured setups, the right of dismissal is combined with preventive mechanisms – making certain dispositions conditional on the prior written consent of a supervisor and having a clearly described procedure in case the trustee dies, resigns, or becomes incapacitated.
The Founder as Trustee and Their Limits
Both the founder and the beneficiary can be trustees. However, Section 1454 adds two conditions: the fund must have another trustee who is a third party, and the trustees must act jointly.
This structure gives the founder a de facto veto over every legal act of the fund, as no action can be taken without their signature. At the same time, it prevents them from acting alone, so from the perspective of separate ownership, it is a compromise, not a circumvention of the institute's essence.
Choosing this path is legitimate. However, an inverse relationship applies: the closer the founder is to full control over the fund, the weaker their position in a potential dispute with creditors, the tax authority, or an insolvency administrator.
The Right to Appoint Beneficiaries and Determine Distributions
According to Section 1457, the founder has the right to appoint a beneficiary and determine their distributions from the trust fund, unless the statute specifies otherwise. If the founder does not exercise this right, it passes to the trustee; for a fund established for a private purpose, this only happens if the statute defines the circle of persons from which a beneficiary can be appointed.
Whoever decides to whom and in what amount the fund makes distributions holds economic control over the fund – often more than the person who manages the assets. At the same time, the limit under Section 1458 applies: no one is entitled to appoint a beneficiary or determine a distribution for their own profit.
A practical detail that is often overlooked: for a fund established for a private purpose, the appointment of a beneficiary is effective only from the date of its entry in the register of trust funds. A decision made "for the drawer" is therefore not sufficient on its own.
Supervision, Information Rights, and the Role of the Protector
According to Section 1463, supervision over the fund's administration is exercised by the founder and the person designated as the beneficiary, or other persons if so specified by the statute. It is this last phrase that opens up space for what is known in international practice as a protector or supervisory committee.
The content of supervision is supplemented by Section 1465: at the request of a person with the right of supervision, the trustee shall allow inspection of the fund's documents and submit the requested accounting, report, or other information. However, in practice, the right to information is worthless unless the statute specifies the concrete scope, form, and frequency of reporting and the deadlines for response.
A well-configured supervisory layer is often more effective than the formal right to dismiss the trustee because it acts continuously. The lawyers at ARROWS law firm will help you set up the statute, supervisory mechanism, and consent limits so that control is enforceable without jeopardizing the separation of assets – get in touch at consultation@arws.cz.
When the Trustee Fails to Perform: Judicial Tools
According to Section 1466, the founder, beneficiary, or any other person with a legal interest may propose to the court that it order or prohibit a certain action by the trustee, or that it dismiss the trustee and appoint a new one. The same persons may invoke the invalidity of a legal act by which the trustee harms the fund or the beneficiary's rights.
However, the law explicitly protects third parties: if a third party has acquired a right in good faith, this must not lead to their detriment. In practical terms, this means that the founder will generally not be able to recover assets from a buyer who purchased real estate from the fund in good faith – they are left with a claim against the trustee.
Additionally, a court may, upon the motion of a person with a legal interest, dissolve the fund under Section 1469, or amend its statute if achieving its purpose becomes impossible or difficult. According to Section 65a(4) of the Act on Public Registers, the court may also decide to dissolve the fund without a motion if the trustee fails to remedy registration deficiencies.
Potential Problems | How ARROWS Can Help (consultation@arws.cz) |
|---|---|
The statute does not address the dismissal and succession of the trustee: after the trustee's death or resignation, a deadlock occurs, and a court appointment is necessary. | We will add a mechanism for appointing and dismissing the trustee to the statute, including substitute trustees, deadlines, and a procedure for resolving disputes between jointly acting trustees. |
Lack of consent and investment limits: the trustee can do anything necessary and useful with the assets, and significant dispositions are not subject to prior approval. | We will establish a list of actions subject to prior consent, set investment and debt limits, and create a sanction mechanism for their violation. |
Supervision is only formal in the statute: the founder is not entitled to regular reporting and only obtains information during a conflict. | We will implement an enforceable reporting regime, define the scope of documents, frequency, and deadlines, and establish the position of a supervisor. |
The founder's rights do not pass to the next generation: after their death, the circle of entitled persons becomes a subject of dispute. | We will prepare an intergenerational setup for the fund, link it to testamentary dispositions, and align it with the corporate and family structure. |
Where is the Line: Control That Devalues the Fund
In its resolution 5 Tdo 1273/2021, the Supreme Court concluded that the removal of a debtor's assets under Section 222(1)(a) of the Criminal Code also includes concealing them in a way that allows the debtor to continue to dispose of, use, and potentially reclaim the assets later. According to the court, the setting aside of a debtor's assets as a founder into a trust fund must be assessed in this way.
The civil law aspect is supplemented by Section 1467: if the trustee, founder, or beneficiary participates in acts aimed at intentionally damaging the rights of the founder's creditor or damaging the fund, they are jointly and severally liable. The retention of control can therefore be turned against the founder as evidence that the assets never actually left their sphere of influence.
The timing and purpose are decisive. A fund established at a time when the founder is facing insolvency, enforcement proceedings, or a major dispute is inherently suspicious; conversely, a fund established during a quiet period, with a real purpose and a visibly independent trustee, will stand up even with strong control rights for the founder. That real disputes are being fought over the validity of a fund's establishment is also shown by the Supreme Court judgment 24 Cdo 1754/2022, in which the court dismissed the trustee's appeal.
The Register of Trust Funds and the Ultimate Beneficial Owner
A trust fund is established only upon its registration in the register of trust funds. According to Section 65d of the Act on Public Registers, this register includes, among other things, details about the trustee, the number of trustees and how they act, the founder, the beneficiary, and any other person authorized to exercise supervision. A search for "svěřenský fond" in the ARES register today returns over a thousand entities, so it is not a marginal institute.
According to Section 65e of the same Act, information about the founder, beneficiary, and supervising person is not included in an extract from the register nor is it published unless consent has been given. A full extract can only be obtained by the trustee or someone with a legal interest, as well as by specified authorities. Therefore, discretion towards the public is maintained, but not towards the state.
This is followed by the register of ultimate beneficial owners. According to Section 6(3) of Act No. 37/2021 Coll., the ultimate beneficial owner of a legal arrangement is always its founder, trustee, beneficiary, and any person authorized to exercise supervision who can appoint or dismiss a trustee or beneficiary.
The practical consequence is clear: every additional control role the founder creates in the structure will generally add another registered ultimate beneficial owner.
Tax Implications That Are Often Forgotten
A trust fund is, according to Section 17(1)(f) of the Income Tax Act, a separate corporate income taxpayer, even though it does not have legal personality. It therefore has its own tax obligations, its own accounting, and its own relationship with the tax authority.
Distributions to the beneficiary also have a separate tax regime, which distinguishes between whether the distribution comes from the fund's assets or its profits. The specific impact depends on the statute's setup and the person of the beneficiary, so a tax assessment should be part of the fund's preparation, not its consequence. We discuss the individual tax obligations of the fund and the regime for distributions to beneficiaries in more detail in the article taxes for trust funds.
Potential Problems | How ARROWS Can Help (consultation@arws.cz) |
|---|---|
The fund was established at an inappropriate time: there is a risk of voidability, joint and several liability, and criminal assessment as removal of a debtor's assets. | We will assess the timing and risk profile of the structure, document the economic reason for its creation, and propose a safer asset protection alternative. |
The register of ultimate beneficial owners does not correspond to the real structure: the founder's control roles are not reflected in the registration. | We will review the entry in the register of trust funds and the register of ultimate beneficial owners and prepare documents for banks and obliged persons under AML regulations. |
The fund's tax regime was not addressed in advance: distributions to beneficiaries and the fund's management have unexpected tax consequences. | We will provide a legal and tax assessment of the structure, including the regime for distributions to beneficiaries and the setup of the fund's accounting. |
Dispute with the trustee: the trustee is not providing information or is acting against the fund's interests. | We will represent you in proceedings under Section 1466 of the Civil Code, from a formal demand and an audit of the administration to a motion for the trustee's dismissal and damages. |
What to Do Now: A Practical Approach
If you already have a fund, start with a review, not a change. If you are just planning one, address control before assets.
Go through the statute and evaluate which of the founder's rights are actually enshrined in it and which you are merely assuming.
Verify the method of appointing and dismissing the trustee and add a procedure for their death, resignation, or inactivity.
Set up a specific reporting regime instead of a general reference to the right to information under the law.
Introduce a list of actions subject to prior consent and corresponding investment and debt limits.
Align the entries in the register of trust funds and the register of ultimate beneficial owners with the actual distribution of roles.
Evaluate the risk profile: when the fund was established, what claims existed at that time, and how its economic purpose is documented.
Final Summary
Control over a trust fund after setting aside assets is not held through ownership, but through its structure. The deciding factors are the statute, the right to appoint and dismiss the trustee, the right to designate beneficiaries, the established supervision and information rights, and, as a last resort, judicial tools under Section 1466 of the Civil Code.
At the same time, control has a ceiling: excessive retention of decision-making powers by the founder weakens the very purpose of the fund and, with unfavorable timing, opens the door to voidability and even criminal liability. The difference between a functional structure and a contestable one is a matter of a few provisions in the statute.
For business owners, developers, and investors, a trust fund is a tool for intergenerational planning and risk separation, not a way to disappear from the reach of creditors with their assets. If you do not want to risk disputes with creditors, supervisory findings, or the loss of influence over your own assets, entrust the setup or review of your fund to ARROWS law firm – write to consultation@arws.cz.